Labor versus Capital

Over at the TreePeople blog, founder Andy Lipkis takes exception to water agencies’ typical reliance on technological/industrial approaches to providing safe, reliable water supplies. He compares two possible approaches for increasing the local supply of water for Los Angeles, rain water capture and ocean water desalination plants. Beyond the obvious question of why you would allow rain water to run into the ocean, becoming salt water, so you can then pump it back out and try to take the salt out of it, he sees another lost opportunity with this approach, jobs.

Lipkis compares these two charts:

Source: Pacific Institute, “Desalination, With a Grain of Salt”

Source: Political Economy Research Institute

He notes that a typical desalination plant has only 4% of its costs come from labor indicating few long term jobs due to a focus on investing in a capital and energy intensive approach. By contrast, investment in “Water Systems” like rain water catchment has been shown to produce more jobs per dollar invested than other major infrastructure projects and common tax cuts. Water catchment and recycling requires capital investments, but it also requires more long term labor to build, maintain, and operate. Lipkis spots a key fallout from this approach:

The investment decision towards massive grey technology and away from people drains cash and resources, jobs and vital energy from communities and city. The result is a very powerful contributor to chronic unemployment of urban dwellers. Lack of legitimate, useful work perpetuates poverty, hopelessness, crime, and leads to youth violence.

A general shift away from labor intensive and toward capital intensive approaches is considered normal for an advanced economy with high living standards. Labor tends to be expensive and it is more “efficient” to invest in larger, more automated systems. Lipkis has identified one undesirable consequence of this tendency. But he doesn’t go beyond that into one of the key reasons that this is typical…cheap energy. Seawater desalination is hugely energy intensive. That this is now being considered as a viable solution to dwindling fresh water supplies points to our desperate need for more water, but also that manufactured energy is still vastly cheaper than human energy (labor). Even a modest increase in the costs of energy will begin to shift this equation, making energy intensive approaches more costly while making labor intensive approaches more competitive.

Whether it is through cap and trade, industry specific emissions targets, or other techniques, all recent proposals to change our energy policies have been widely attacked as “job killers”. While anything that increases costs does tend to suppress economic activity and jobs in the short term, most critics fail to see the long term implications of raising energy prices. For many industries, long term expensive energy may actually tend to increase employment as labor becomes more competitive cost wise compared to capital intensive techniques. By keeping labor relatively expensive, we’ve driven our economy toward cheaper, energy intensive systems. While this may have lowered the cost of many goods and services, it has also contributed to job insecurity, higher unemployment, and rising outsourcing. Corporate america might not like expensive energy, but if you actually “work for a living”, it might be the best thing coming.

1 comment so far

  1. George Carty on

    I think you’ve fallen prey to the Luddite fallacy here. Using more workers to produce the same amount of product may mean more jobs, but those jobs will be very poorly paid — not providing a living wage in today’s circumstances.

    The real reason why standards of living are in decline for ordinary people in the Western world is a combination of increased competition from the Far East, and the fact that property owners have been able to capture an increasing share of the total wealth in the form of higher rents and real estate prices. (In the United States, runaway inflation in health care costs is also a driver.)

    I suggest universal health care (in the United States) plus a land value tax, would do a greate deal to solve the problem.

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